KITKAT in Japan - Q&A with Philip Sugai

KITKAT in Japan: sparking a cultural revolution

This summer Nestlé Japan announced it is breaking ground on a new factory to satisfy increasing demand for the unique and unconventional flavours of KITKAT, the popular wafer chocolate. Ask to see the average tourist’s bucket list and you’ll likely find they are eager to sample at least a few of the 300 different flavours, ranging from custard pudding to sushi.

The chocolate’s popularity in the country goes well beyond novelty. A key part of its growth there has been the brand’s story, which weaves Japanese culture and history with its own. Through telling its story, KITKAT was able to launch ahead of extraordinarily popular local incumbent Ezaki Gilco, producer of Pocky.

This four-part case series on Nestlé Japan’s confectionary business focuses on redefining the KITKAT brand within the Japanese market. KITKAT was not always so popular in the country and this case series takes students through the marketing strategy development process as experienced by Nestlé Japan’s executive team in 2008.

In this interview, we speak with author Professor Philip Sugai to learn more about the writing process and gain insight into how he teaches the comprehensive four-part case series.

Ivey Publishing: Why did you decide to write a case on KITKAT? What was your favourite part of this case-writing experience? What were the biggest challenges you faced?

Philip Sugai: I made the decision to write the KITKAT case after seeing Nestlé create KITKAT Mail in 2009 and making it available in 20,000 post offices around Japan on the exact same day. In my book on how to create marketing strategy, The Value Plan, I teach the critical importance of distribution channels, and this is by far the best example I've ever come across of just how powerful this choice is on marketing and the results it has. I decided when I saw this to try to find the executives in charge of this decision, and very luckily I was able to meet Takaoka-san, the President of Nestlé Japan at Philip Kotler's World Marketing Summit in Tokyo in 2015.

My favorite part of writing this case was getting to know the KITKAT management team, and learning how deeply committed they are to creating value. I hear many executives use the "proper" words in their presentations, but here is an example of a team at Nestlé Japan who is deeply and fundamentally committed to providing their customers with the value that they promise. The fact that this has translated into a powerful brand, and that KITKAT has become woven into the fabric of Japanese culture is a testament to the fact that their commitment goes beyond just the words that they use.

The biggest challenge that I faced in this case was simplifying all of the data and information that I collected on the evolution of the KITKAT brand into this four-part case series. There are so many interesting facts, fun commercials, and great customer testimonials, that it was incredibly hard for me to delete these.

IP: Our case supplements can function in many ways, acting sometimes as epilogues for a specific purpose and in other situations requiring a full class to unpack. The KITKAT In Japan case series leans more towards the latter, advancing the story of the brand over a 15-year period, presenting students with significant challenges along the way. Could you share some of the reasons why you chose this case series format and do you have any advice for instructors teaching cases over several classes?

PS: I've been teaching about KITKAT Japan for many years, and honestly tried very hard to make this a short 10-12 page case. But because of the richness of the information that is here, and the very clear value-focused approach to marketing that Takaoka-san, Ishibashi-san, Maki-san and the entire Nestlé Japan team took, it became clear that this case needed a different type of treatment. I have tried using a shorter version of this case as a test, and the overwhelming number of questions made it very clear that I needed to provide more context and information to clarify the key lessons of this case.

Because this case covers the evolution of the KITKAT brand over 15+ years, I've written a very detailed teaching note to help instructors really understand the dynamics that are at play within the market, and how we as professors can guide students to understand the key points along the way.

I've also recorded Nestlé Japan CMO, Masafumi Ishibashi "solve" this case for MBA students here at Doshisha Business School in Kyoto Japan to give a more realistic context to the challenges that were faced and the clear commitment by the Nestlé Japan team to creating value all along the way.

IP: Have you tried other formats with students and what do they like about tackling the cases as a series?

PS: Yes, I have, and using the series approach enables the students to focus on specific issues along the evolutionary path of the KITKAT brand in Japan as it develops and grows over time, which I've found to be a very effective way to learn brand stewardship. I also think that the students enjoy being able to take time to explore what was happening in each case module at that time, using the resources available online to really dig in and try to understand the challenges and opportunities along each step of the path.

IP: In the A case, you unpack Japan’s unique culture, exploring for example the Shintō religion and the mindset of Japanese consumers that helped KITKAT form a solid foundation for its brand. While the cultural practice of giving good-luck charms might be unique in some ways to Japan, do you think this strategy broadly speaking could be implemented elsewhere?

PS: I believe the lessons from this case are universal, and that executives, professors and students around the world can and should learn from how the Nestlé Japan team has been able to integrate a completely foreign brand into the very fabric of the local culture. While the Japanese may attach a specific cultural importance to good luck charms during times of challenge, I agree that this is not at all unique to Japan.

What this case explores in detail is exactly what mechanisms the Nestlé Japan team employed to peel back the essence of the KITKAT brand within the context of Japan. They already had a very long history in the country, but as the KITKAT brand faced very clear signs of becoming just another commoditized chocolate snack, the Nestlé Japan team used a number of qualitative research techniques to dig into the underlying meaning of their original tagline "Have a break, have a KITKAT". Since they were operating in Japan, they conducted this research on local consumers, and were able to find uniquely local connotations of what a "good" break truly meant.

While executives in other countries would definitely find different meanings, the process that Nestlé Japan executives used can be easily replicated anywhere in the world.

IP: The case very briefly touches on challenges related to game-changing ideas being turned down, often due to the strict brand standards or policies of some companies. What advice can you offer to individuals who want their ideas heard or implemented?

PS: For me, this was one of the most interesting insights to come out of my case interviews, and something that speaks to an approach to marketing that emphasizes the creation of communications channels where executives can quickly and easily hear the unfiltered voices of their customers. I remember reading Eric von Hippel's work on ‘lead users’ many years ago, and how reaching out and interacting with those people truly at the very edge of where your product is being used can lead to enormous benefits. And here in this case, we see that while the company did in fact have the capabilities to listen, it took a persistent store manager more than a year to get his message heard.

So persistence is definitely important, especially, like this store manager in Kyushu knew from listening closely to the shoppers in his store, that the term "Kitto Katsu" or "surely win" would help sell many more KITKAT during the test-taking season. But also, timing is vital. The Nestlé Japan team needed that extra year to learn the power that message could truly bring to their brand, and the story that they could create in order to truly elevate the significance of KITKAT as a platform for good luck wishes, love and support.

IP: In many ways KITKAT Japan, despite looming challenges ahead, is a true success story for its ability to adapt to the local market and beat the former number-one chocolatier Ezaki Gilco, producer of Pocky. Should global brands work harder to cater to local tastes? Your case shows the power of adaptability when it creates opportunities for future revenue outside the local market, as in the dilemma presented in case D, where KITKAT is considering the export of Japanese-only flavours to countries like the U.S.

PS: Fundamentally, every brand should remain true to its core values, and what it stands for. What readers will notice within the case, and what Masafumi Ishibashi repeatedly mentions when explaining their efforts, is that KITKAT has never changed its name, or its brand message, like other competitors have tried to do after KITKAT catapulted to the #1 position in Japan.

But what amazes me about what the Nestlé Japan team has done is that they have built an innovation platform that allows them to test and modify nearly every aspect of marketing strategy. Just like Lean Startup speaks about constant and ongoing testing, and internet platforms such as Google and Facebook allow for A/B testing any and every part of a website, page or message, the Nestlé Japan team has built a similar platform for KITKAT. The sophistication of these tests, and their embrace of failure as a platform for learning (like the short-lived Wasabi-flavored KITKAT, or KITKAT biscuits) makes this case incredibly relevant to any company trying to understand how to build a brand that resonates within any market.

The very clear challenge that the Nestlé Japan team faces today is how to build upon this success inside of Japan and help to expand the impact of its work globally. As of today, the #1 gift that international visitors buy at the Duty Free shops in Narita, Haneda and Kansai Airports is Green Tea KITKAT. And if you watch any of the YouTube videos of Americans eating different flavored KITKAT, it's clear that the fun, challenge, and at times bizarre flavor, taste and color variation transfers easily to other markets.

Exactly how Nestlé handles this next evolutionary step will hopefully be the focus of the E case that I hope to write in the future.

IP: Speaking of adaptability, as awareness of health increases globally, what do you think the future of KITKAT is in Japan in the next 10 years?

PS: The focus on health and wellness is definitely increasing globally, and big brands globally are continuing to explore how their products can add increasing levels of value to their customers. Coke Life is one example of one of the world's largest brands trying to accomplish this, and there are more examples that I could list here that show even deeper commitments by other companies to this critical issue.

I strongly believe that you'll also see flavor, taste and ingredient variants from KITKAT Japan in the future that also focus more heavily on this area as they build more depth to their premium Chocolatory brand. There are many opportunities for partnerships with sports brands, and others who offer similar messages of encouragement to those facing major challenges.

So it's clear that the future is very bright for KITKAT in Japan over the coming 10 years, and I'm very excited to watch this brand further evolve and grow.

IP: What is your favourite KITKAT flavour?

PS: Do I really have to only pick one? Ok, if it's just one, then definitely the "Adult Sweet" dark green tea is my favorite. But if I could add a 2nd runner-up it would be the baked KITKAT, which I know sounds strange and counterintuitive, but it actually hardens and caramelizes in the toaster and is incredible. And if I can pick one last one, it would be to indulge in the 66% cacao dark chocolate KITKAT available through the KITKAT Chocolatory.